What would be the impact on your business if you were suddenly unable to operate due to an unforeseen incident, whether it be flooding, fire, malicious damage, a terrorist incident or even just a power cut? Would your staff know what was expected of them? How long could your business survive without its premises or critical IT systems?

Contrary to the ’it will never happen to me‘ school of thought, these scenarios are far from unusual and talk of the potentially dire consequences for small companies is much more than just scaremongering.

According to a survey by the Department for Business, Enterprise and Regulatory Reform (formerly the Department of Trade and Industry), seven out of 10 small firms would go out of business within a year if they experienced a major disaster. Findings from the same survey also suggested that if computer systems were unavailable for 10 days or more, 50% of businesses would cease trading immediately with 93% going bankrupt within 12 months.

The variety of threats that could potentially affect businesses is so vast that it makes planning specifically for each individual event almost impossible. What is critical, however, is a proper business continuity plan that enables you to prepare in advance ways in which you can keep your core business functions operational in any eventuality.

While awareness of the need to do this has improved over recent years – largely thanks to high profile incidents such as the Buncefield fuel depot fire in late 2005 and the severe flooding that affected parts of England earlier this year – the key to the effectiveness of such plans is a thorough and regular programme of testing. “Without proper training and testing, weak and unworkable plans can affect a business as seriously as having no plan at all, so reviewing the main steps is vital,” says Russell Price, chairman of the Business Continuity Forum. “A key area to focus on is communication with the workforce, as only a third of small firms do this effectively.”

Learning lessons
The flooding in mid-2007 in particular hit homes and businesses hard with its sudden and devastating impact. “We saw one firm that had located all their servers in the basement when they moved premises. Had they been located on the ground floor, they would not have been damaged and their business would have been relatively unaffected,” says David Townsend, a major loss specialist within the corporate and major incident team at Crawford & Co.

“For the future, businesses should think about flood-resilient repairs or construction to reduce reinstatement times and also think about how they use their premises,” he adds. “Business continuity plans should be revisited to see how well they operated and appropriate changes made where there were failings. Those not affected by these most recent floods should also examine their plans to see whether there is an over-reliance on local services and alternative premises that may not be available because they have also suffered damage.”

But risk assessment should not just consider loss of infrastructure. Almost all of a company‘s critical functions could potentially be at risk, and that includes one of its most vital assets: its staff. “Different situations present differing threats to small companies and their business continuity plans,” claims the Business Continuity Institute‘s Price.

“With 64% of bosses admitting they have no plans, an influenza pandemic is one of the most commonly overlooked threats, but it doesn‘t stop there. Our research has also found that preparation among small businesses for natural disasters, chemical hazards and bomb threats must also be addressed,” he adds. “By failing to invest in sensible measures to protect the firm, many companies are leaving themselves exposed to potentially serious difficulties which would directly impact on their ability to operate effectively.”

Safety net
But even the most diligent approach to managing risk and maintaining a clear and comprehensive business continuity plan cannot remove the threat of business interruption altogether. That‘s why a truly holistic approach to protecting your business must include a good balance of these measures combined with appropriate insurance cover.

Business insurance can help keep a company running smoothly even when the unexpected happens, and there are also many steps that business owners can take to minimise the risks of claims that could result in business downtime.

For example, while the risk of theft or damage to stock on the premises might be considered, owners should also think about insuring their business against damage to stock during transit. The loss or damage to stock as a result of an accident or theft during transit can result in potentially significant losses of income due to supply not meeting demand. This is a particularly poignant risk for businesses trading in specialist stock when it can be difficult to rearrange deliveries.

Business owners would also be well advised to protect themselves against the risk of legal action. “On the liability side, we mainly see slips and trips on premises,” says Neil Fraser*, claims market services manager at Zurich Insurance Company. “In the case of shops or businesses being situated on the highway, there is frequently a dispute over ownership of the frontage between the customer and the local council and it is important to ensure there is clarity before an accident occurs. Spillages in shops and restaurants are also common and it is important to have written procedures for dealing with spillage and accidents to help repudiate claims.”

There are many costs associated with the health and safety of employees, and different types of insurance can work alongside one another to help reduce costs of work-related injury and illness. Employer‘s liability, for example, is a compulsory insurance (with the exception of non-limited companies employing only close family members and limited companies with one employee who owns at least 50% of the issued share capital). It will cover legal and compensation costs for employees who suffer work-related injury or illness, onsite or offsite, but it is good practice to ensure that all eventualities are covered.

“Claims concerning employees can be especially serious for smaller businesses,” warns Zurich‘s Fraser. Accidents at work will cost your business money, even small incidents. In fact, the Health and Safety Executive found that, on average, the cost of uninsured losses is 10 times the cost of insurance premiums paid for the same period**, and the smaller the business, the greater the potential impact. Examples of uninsured costs of work-related injuries and illnesses include lost time; sick pay; production delays; loss of contracts; investigation time; and damage to products, plant, buildings, tools and equipment.

Personal protection
While personal accident insurance is not compulsory, it can work in addition to employer‘s liability to help protect against lost time and sick pay which, in turn, can help reduce costs of production delays and potential loss of contracts. When an employee needs to take a period of time off work as a result of illness or injury, the employer can opt to receive the money towards the business to fund temporary staff as a way of keeping the business running.

In addition to ensuring the appropriate insurance is in place in the event of injury or illness, business owners should also carry out a thorough risk assessment. “Many small business owners forget that when they have more than five employees, they fall under a variety of regulations that require completion of risk assessments and accident books,” explains Fraser. “In many cases the customer doesn‘t realise this until we investigate the claim post-accident.”

A risk assessment should be carried out in order to identify:

• What could cause harm
• Who might be harmed (employees, visitors and public alike)
• Measures needed to prevent potential injuries or illnesses
• Procedures required to implement those measures, complete with logging of measures taken
• Who should carry out checks to ensure actions are still working and how frequently

For owners of small businesses, time is of course limited. However, involving employees and third parties in identifying risks and providing solutions could help considerably. Employees involved in operational activities on a daily basis may be able to come up with simple solutions so it‘s worth talking to staff on the ground. The Health and Safety Executive is also an excellent source of regularly updated advice, while it‘s also worth seeking advice from insurance firms when arranging cover.

For most small companies, day-to-day business issues often occupy such a large proportion of the working day that it doesn‘t always leave a great deal of time for long-term contingency planning. But business continuity planning has certainly moved higher up the list of priorities in recent times.

“Given events such as the recent flooding and the foot-and-mouth outbreak in Surrey, there is definitely an increased sense of urgency,” claims the Business Continuity Forum‘s Price. “However, small businesses are still vulnerable because there is a palpable sense among bosses that it won‘t happen to them. The facts are plain: both your workforce and your business are at major risk if you don‘t look at introducing a business continuity plan. As the old saying goes, if you fail to prepare then you must prepare to fail.”

*Neil Fraser, Zurich claims market services manager, 13th September 2007
**www.hse.gov.uk: Health and Safety Commission, Reduce Risks – Cut Costs